Why Millennials Continue to Disappoint

A year ago I wrote a column called “Supermarkets’ Future at Mercy of Millennials,” in which I outlined how this generation of younger consumers, hit particularly hard by the economy, has been holding off on forming households to an extent not seen in many decades.

In that piece, I quoted Scott Mushkin, a well-known food retail analyst, who cited the historic trend and its importance for supermarkets. He offered a hopeful note, saying there’s a chance Millennials could spark “a renaissance of the food-at-home industry sometime next year” if these consumers begin to speed up household formation, and especially if the economy lends a bit of cooperation.

Well, it turns out there’s not much to celebrate a year later about Millennials, who range in age approximately from late teens to mid-30s. Recently I got an update from Mushkin, an analyst with Wolfe Research (last year he was with Jefferies & Co.).

“Millennial household generation is still disappointing,” he said. “The hope is that household formation, and then birthrates, will rise. But although Millennials are forming households at a quicker pace than last year, they’re way behind. And birthrates are stubbornly low and starting to cause some concern.”

The still uncertain economy is fueling these dynamics, even though the recession officially ended in 2009. Mushkin believes the trend will eventually reverse itself, but he points out that the impact has the potential to be huge.

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Meanwhile, some new data from Information Resources Inc. provides a glimmer of hope. IRI found that consumer sentiment related to grocery shopping is on the upswing, led by, believe it or not, Millennials.

IRI’s quarterly Shopper Sentiment Index measures factors such as price sensitivity, brand loyalty and spending required to meet a desired lifestyle.

The overall index rose to 106 in Q2, compared to the benchmark of 100 in Q1 2011.

The Millennial segment is still indexing below average, but it exhibited a major surge in the second quarter to 94, compared to an earlier pattern of holding at about 85 since early 2012.

While the outlook for this group appears to be improving, it’s far too early to know if this is a repeatable finding, according to my interview with Susan Viamari, editor of IRI’s Times & Trends report.

2013 Power 50: Generation Y, the 'Millennials'

“We’d need to see at least three quarters of continued improvement with Millennials, and in the state of the economy,” to feel this is a trend, she said.

Food retailers can’t control how Millennials feel about their financial situations, but they can work to improve their relationship with this generation, which may in fact be strained. 

“The basic problem is the supermarket format was designed for their parents,” Mushkin offered. “It’s almost a worst case situation because they don’t want to go to the same place and buy the same food.”

In contrast, he added, some other formats, ranging from certain natural food stores to online operators, appear to hold more attraction for this generation.

SN blog: Are Millennials the Perfect Supermarket Employees?

Viamari said supermarkets can optimize their relationship with Millennials if they understand this group’s needs. Many in this generation want experiential components but still require value, she explained. That could mean, for example, offering affordable, restaurant-quality foods for take home, or higher-end yet affordable beauty care products that bring a spa feeling into the home.

This approach makes sense for retailers because it’s based on specific insights into this demographic.

Supermarkets need to do their part to improve the relationship. But that’s only part of the battle. They must also hope that Millennials and the economy fall into line.

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